Education Government Regulations Come Always after Big Crises: Are Bankers Next to Split Following the Auditors?

Abstract

1. Crisis Part I: Auditors Split from Creative Accounting Consultants by in the US During the formation of the dotcom bubble in the 90's, when everybody was profiting, the Auditors couldn't be left behind. So, being creative, they came up with the idea to offer accounting consultancy to clients they were promptly due to audit afterwards, tripling their revenues in the process. Consequently, everybody was looking successful. The auditors had more revenues, the corporations were showing more profits, the Investment Banks and other professionals in the financial industry had more business, and investors' portfolios were inflating along with the stock market bubble. All in all, the paper economy seemed to be performing well and the politicians' leadership looked very effective. During the bear market 2000-2002, when everybody found out that the emperor has no clothes on, the bubble deflated and the domino effect worked again in the real economy. Corporate scandals in blue chip companies like Enron and WorldCom could not be hidden or cooked any longer. Then, while previously successful looking professionals began blaming each-other for all the painful consequences affecting the lives and fortunes of many people, promising government officials intervened again to punish the criminals and save the unprotected public from the crooks. Market regulations were once again the prescribed medication. As a result of this mini crisis, the oldest jewel of the Auditing Industry, (Arthur Andersen), became the martyr, as it was essentially forced into liquidation in 2002. Shortly afterwards, the rest of the industry sold-off their consultancy business, in compliance to one of the key directives of the Sarbanes-Oxley Act that separates the conflicting business of Consulting from that of Auditing. 2. Why Regulators Always After a Big Crisis but Never Before? Were the above conflicting services offered from the Auditors until recently the only ones offered in the financial marketplace? Are there any other major conflicting services offered today by the main participants in the financial markets? What about the services offered by the Banks in the Buying and Selling process of financial products with respect to the public interest? Are there perhaps obvious conflicting interests between departments within Banks waiting to be painfully discovered again by the public, and to be followed once again by regulatory interventions after the next big crisis in the global financial system? Is there really any so called Chinese between the departments of an organisation, or is it just a public attraction, like the Wall in modern China today which is part of the interrelated World Trade Organisation? And if these concerns are valid, why are legislators again waiting for the crisis to appear first, before taking any action? As history teaches and helps us to predict the future, a reasonable person should wonder why elected government officials act always after a crisis but never before. A person well educated in history has only to recall and attempt to justify the timing of the following major regulatory interventions in the financial industry (coincidentally always after disasters) during the last century: Why was a new oversight body, the Securities and Exchange Commission, created in 1934 following the biggest crash to date in the Dow Jones index (-90%) from its peak in 1929, accompanied with the largest number of rules and regulations governing all financial markets in the USA? (Bernanke 2004, Ahamed 2009). Why was the Banking industry separated by the Glass-Steagall act into Commercial Banking (accepts deposits) and Investment Banking (underwrites securities) in 1933, in order to reduce conflicts of interests and restore confidence in the banking system following the crash in the Dow Jones (-90%) and the USA depression in the 30s? Why was the daily computerised program trading in the NYSE regulated just after the one day mini crash in the Dow Jones (-22%) on the 19th of October 1987? …